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Koch Sued by Executive for False Imprisonment at Bear Ranch

Dueling lawsuits allege tax evasion, kickbacks and fraud

Oct. 15 (Bloomberg) -- William Koch held a senior executive of his Oxbow energy company captive for almost two days after discovering his concerns about a plan to avoid U.S. taxes on $200 million in profit, the now ex-employee said in a lawsuit.

Former Oxbow Senior Vice President Kirby Martensen alleged that an unrelated company probe revealed his misgivings over the purported effort by Oxbow Carbon & Minerals LLC. As a result, Martensen said, he was falsely imprisoned by Koch’s agents and interrogated at a remote Colorado estate as part of an attempt to intimidate him. He was also fired, he said.

Koch, who Bloomberg Billionaires Index estimates is worth $3.7 billion, is the brother of conservative Tea Party funders David Koch and Charles Koch. Martensen, promoted last year to senior vice president, said he was lured to the billionaire’s “Bear Ranch” near Aspen in March on false pretenses and questioned about anonymous allegations of wrongdoing made against him tied to a kickback scheme. The company sued him over the claims in Florida state court March 22, while he was allegedly being held against his will in Colorado.

“Based on this surreptitious review of plaintiff’s e-mails and voice communications, Koch learned that Martensen and others expressed concern of the legality of what they were doing on behalf of Oxbow and their distrust of upper management,” Martensen said in a complaint filed Oct. 11 in San Francisco federal court. “As a result, William Koch promoted and implemented a plan to intimidate and discredit plaintiff for the purpose of chilling his speech and damaging his credibility.”

Coal Deposits

Koch, 72, who made his fortune partly by developing underground coal deposits in Somerset, Colorado, maintains a working cattle operation at the ranch, located southwest of Aspen. Oxbow, a West Palm Beach, Florida-based petroleum coke export broker, and two affiliates have combined annual sales of more than $4 billion and more than 1,100 employees worldwide, according to the company.

In a statement posted on its website, the firm claimed that Martensen’s lawsuit was filed in response to the litigation in Florida over an alleged $40 million fraud at the company. Oxbow denied the allegations in Martensen’s lawsuit.

“In the spring of 2011, Oxbow initiated a yearlong investigation culminating in the dismissal of several executives and a civil complaint being filed last March,” the company said. “Martensen states in a lawsuit that we investigated him for participating in a wide-ranging scheme to defraud, accepting bribes and diverting business from our company. He is right. We absolutely investigated Martensen."

Florida Suit

In the Oxbow lawsuit filed in Palm Beach County, the company alleged Martensen breached his duty to the firm.

“In or before March 2009,” Martensen and other former executives of Oxbow units participated in a “wide-ranging scheme to systematically misappropriate revenues and business opportunities” from the company, Oxbow claimed.

Martensen accepted illegal bribes, kickbacks and other payments from Oxbow competitors and “secretly shared in the payments, revenues and profits derived by plaintiffs’ competitors,” Oxbow alleged in the complaint.

The lawsuit involved sales to three Oxbow customers located in Asia that aren’t named in the complaint.

From 2009 to 2011, Oxbow “was led to believe” that more than one million metric tons of product was sold to these three clients, the company alleged. In 2011, Oxbow learned Martensen was allegedly stealing from Oxbow by receiving money from competitors to divert and resell Oxbow pet coke and coal at “substantially higher margins” to buyers in Asia, according to the complaint. Shell companies were created to try and hide the purchases, Oxbow claimed.

Tax Evasion

Martensen unsuccessfully sought to dismiss the case and has appealed to the Florida Fourth District Court of Appeal, according to court records. His lawyer in the San Francisco case, John Scott, declined to comment. His lawyers in the Florida matter couldn’t be immediately reached.

Oxbow Carbon is the largest distributor of petroleum coke in the world, with annual shipments of almost 1 million metric tons, exporting petroleum coke to markets in Europe, Latin America and Asia, according to court papers.

Martensen said his rise to senior vice president-Asia with OCM International included relocation to its Singapore office. Koch agreed to give him a 40 percent salary increase, two leased vehicles, and pay for his rent, utilities, appliances and house cleaning costs, as well as fully paying for his children’s education, according to his complaint in federal court.

Martensen claimed he “understood that the goal of this assignment was to help legitimize OCM’s Bahamian shell company. This included, but was not limited to, discussions and negotiations concerning the sourcing of pet-coke and sales to Asian customers.”

Asian Business

The executive stated that he was told his relocation to Asia was for tax purposes. More than 75 percent of Oxbow’s fuel- grade petroleum coke export profits were derived from its Asian trading business, he said in the court filing.

Martensen said in the complaint he “has information and believes this relocation was part of a plan being implemented to evade paying taxes to the U.S. on profits in excess of $200 million per year.”

Meanwhile, Koch had been notified of an anonymous letter claiming Martensen and another employee had been engaging in theft, breaches of fiduciary duty, fraud, and self-dealing against the Oxbow companies, Martensen said in the complaint.

‘Forensic Review’

“Based on this information, William Koch directed a lengthy comprehensive forensic review of thousands of documents, including the written corporate communications files (letters, memoranda, electronic corporate communications, etc.) of several employees, including Martensen,” according to Martensen’s complaint.

It was during this review that Martensen’s concerns about the alleged tax evasion plan were discovered by Koch, Martensen said.

The federal case is Martensen v. Koch, 12-05257, U.S. District Court for the Northern District of California (San Francisco). The state court case is Oxbow v. Martensen, 12- 05386, Florida Circuit Court for the 15th Judicial Circuit (Palm Beach County).

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